SMSF legal framework

SMSF Legal Framework

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The SMSF legal framework doesn’t just include the SIS Act plus Regulations. There is a lot more to it. 

SMSF Legal Framework

SMSFs don’t live in a vacuum. If there was just one set of rules, being an SMSF trustee wouldn’t be so hard. But there is a lot more to it.

SIS Act and Regulations

It starts with the SIS Act and SIS Regulations. Or in full the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994. They do the heavy lifting for SMSFs.

They tell you when and how you meet a condition of release. How to calculate your minimum pension payments. How to run your SMSF.

Trust Law

But an SMSF is also a trust. And so is subject to trust law like any other trust.

Just like a ‘normal’ trust your SMSF is not a separate legal entity, but only a fiduciary relationship – governed by a deed and law – between the trustee and at least one named beneficiary (member) in relation to clearly defined trust property. 

Like any other trust, your SMSF can have one or more individual or corporate trustees.

And like any other trustee you are subject to trustee duties. So you must take reasonable care, adhere to the trust deed and give account. And you have a duty not to fetter your discretion, not to delegate and not to profit.

Different to a ‘Normal’ Trust

But an SMSF is also quite different to a ‘normal’ trust.

A SMSF pays income tax. A ‘normal’ trust doesn’t. Its beneficiaries and / or trustees do.

A SMSF can’t distribute before it meets a condition of release. In a ‘normal’ trust the trustee must distribute all income or otherwise be assessed at the top marginal rate.

Once in pension mode, a SMSF has to distribute a certain amount, so-called minimum pension payments, which might be more or less than its actual income. In a ‘normal’ trust, distributions are linked to income, nothing else.

In a SMSF must adhere to certain investment rules and can’t invest in whatever and however you like. In a ‘normal’ trust you can.

In a SMSF you need a written down strategy. In a ‘normal’ trust you don’t.

A SMSF has (concessional and non-concessional) contribution caps. A ‘normal’ trust doesn’t.

And so on. Do you get the gist?

Taxation Law

Your SMSF has to pay tax on its assessable income but to what extent is governed by the Income Tax Assessment Acts in conjunction with the SIS Act.

Corporation Law

If your SMSF has a corporate trustee, this corporate trustee will need to follow its constitution (or replaceable rules), comply with the Corporations Act 2001 and deal with ASIC – Australian Securities and Investments Commission.

Property Law

If your SMSF owns property, then you also need to comply with Australian property law. Most of this is state and territory based. So each state and territory has its own land title register as well as legislation regarding property and land title. 

Tenancy Law

If your SMSF rents out property, then there is the Competition and Consumer Act 2010 but the rest is state-based again, from your state or territory’s Residential Tenancy Acts to your state or territory’s Fair Trading Acts.

Family Law

And if you go through a marriage or relationship breakdown, then family law will have its fair share to say as well. Your SMSF will probably go into the joint asset pool and be split in one way or another. 

So this is why being an SMSF trustee is not an easy undertaking. There are a lot of moving parts.

Does this make sense so far? If you have a question, please email or call us. There might be a simple answer to your question.

 

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Units for SMSF Trustees

ATO Actions Against SMSF Trustees

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation

Penalty Units for SMSF Trustees

Penalty Units

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Penalty units for SMSF trustees can cost you dearly – up to $12,600 per trustee. 

Penalty Units for SMSF Trustees

As an SMSF trustee you need to follow certain rules. You need to comply with the SIS Act and SIS Regulations and everything that follows.

If you break these rules, the ATO as the SMSF regulator has 7 different actions at their disposal to force you into compliance. One measure is to hit you with administrative penalties. And these are all about penalty units.

Penalty Units

Penalty units – abbreviated as PU – are a concept that is neither new nor unique to superannuation. You can find penalty units across all statutory laws in Australia. 

The Commonwealth of Australia and the Australian states and territories each have their own PU system with a different value allocated to that unit and a different manner and frequency of adjusting this value.

Fines are calculated by multiplying the number of penalty units prescribed for the offence with the value of a penalty unit.

The advantage of using units rather than actual dollar values is that the law doesn’t need to be amended each time penalties are adjusted to inflation or for other reasons.

Instead the law just says x number of units. And the value of these penalty units is set outside of the actual law.

Federal Penalty Units

Federal penalty units only apply to federal offences. The SIS Act is a federal law and so any breaches of the SIS Act are subject to federal penalty units.

Since 1 July 2017, the value of a federal penalty unit has been $210. But this value will increase on 1 July 2020 and then every 3 years on 1 July after that to account for inflation. The increase will be indexed to the All Groups Consumer Price Index.

Not long ago a federal PU was still $170 (2014/15) and then $180 a year later (2015/16 and 2016/17). 

SIS Act

For any breaches of the SIS Act, ss166 SIS Act allocates penalties that range from 5 to 60 penalty units. The ATO refers to these as administrative penalties.

At currently $210 per unit, administrative penalties range from $1,050 (5 units) to $12,600 (60 units) per member. So if you have an SMSF with four individual trustees, you might look at a total penalty of 4 x $12,600 = $50,400.

Penalties

There are four mortal sins that will attract the highest penalty of 60 units. These are breaching the rules about lending in ss 65 (1), borrowing in ss 67 (1) and in-house assets in ss 84 (1) as well as failing to notify the ATO about significant adverse events in ss 106 (1). 

Anything else will be treated less harshly. Breaching operating standards in ss34 (1) SIS Act attracts 20 units. Failing to keep proper minutes and records or to inform the ATO about a change of trustees or directors will get you 10 units. And failing to comply with an education direction, failing to appoint an investment manager in writing or failing to provide required information to the ATO as the regulator of SMSFs will get you 5 units.

No Discretion

There is no discretion when it comes to applying these penalty units. Administrative penalties are automatically imposed as per s166 SIS Act.

If you breach a certain subsection of the SIS Act, you automatically receive the stipulated number of units set out in s166 for that subsection.

As an example, breaching the lending rules in ss65 (1) SIS Act by lending to members and relatives attracts a penalty of 60 PU. The ATO can’t say, “We give Peter 60, Paul 50 and Mary 10 PU.” The ATO has no such discretion. If Peter, Paul and Mary breach the lending rules in ss 65 (1), they receive 60 units each. Not more and not less. End of story.

Remission

Where the ATO has discretion is in the remission of these penalties. This is where they can look at individual circumstances and exercise discretion.

A good compliance history and immediate action to remedy the breach will increase your chances that the ATO remits your penalties. Even more if you have a reasonable explanation how the problem occurred.

But don’t count on a remission in serious or frequent cases of non-compliance.

Combination of Measures

The ATO often combines administrative penalties with other measures like education or rectification directions or the issue of a non-compliance notice. So they fine you and then get you to clean up the mess. 

Each Trustee

Each trustee might be subject to a fine. Be it the corporate trustee or individual trustees. 

And this is one of the many arguments for a corporate trustee. Because if your SMSF has individual trustees, then each trustee cops the full fine.

Let’s say your SMSF with four individual trustees breached the borrowing rules in ss 67 (1). So each of you gets a $12,600 fine, meaning a total penalty of 4 x $12,600 = $50,400.

If you a have a corporate trustee, one penalty of $12,600 is levied on the company. Each director is jointly and severally liable to pay that penalty but it is only one penalty, not four.

Not from SMSF Assets

You can’t pay the administrative penalties from SMSF assets since the penalties are imposed on the SMSF trustee directly.

As an individual trustee you need to pay the penalties from your personal savings. For a corporate trustee each director is jointly and severally liable.

ATO

The ATO’s compliance philosophy is to prevent rather than correct. They want to support you as SMSF trustees to establish and maintain good compliance from the start. Getting you to do the right thing from the start is much easier for all involved than to wield the heavy stick later on.

Units v Points

You might have heard of penalty points instead of units. Same thing. Statutory law uses the term ‘units’ but the SMSF community often talks of ‘points’.

Adverse Tax Consequences

Sometimes penalty units are just the side show. The real issue is often the tax treatment you face as a result of a breach. 

Take a non-arm’t length acquisition of assets as an example. If you acquire an asset at non-arm’s length, then all income from this asset, including the subsequent capital gain is treated as non-arm’s length income and taxed at the top marginal tax rate (45%). This might cost you millions of dollars, but definitely a lot more than the 60 penalty unit you might get.

So don’t just look at penalty units or points. Always consider the resulting tax treatment as well.

Does all this make sense? If you have a question, please call or email us. There might be a simple answer to your question.

 

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Preservation Age

ATO Actions Against SMSF Trustees

Commonwealth Seniors Health Card

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

ato actions against SMSF trustees

ATO Actions Against SMSF Trustees

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ATO actions against SMSF trustees won’t affect you as an SMSF trustee until you run into trouble. Either intentionally or by mistake.

ATO Actions Against SMSF Trustees

At the start having your own SMSF sounds wonderful. It will be your own. You will be the one running the show. 

But an SMSF also comes with a ton of responsibilities… and tough ATO actions when you don’t meet these.  As an SMSF trustee you can be subject to 7 different ATO actions. 

1 – Administrative Penalties
2 – Rectification Directions
3 – Education Directions
4 – Civil Penalties
5 – Criminal Penalties
6 – Disqualification of SMSF Trustees
7 – Notice of Non-Compliance

The worst one is probably a notice of non-compliance (# 7) since your SMSF looses all tax concessions. But let’s look at these one by one.

1 – Administrative Penalties

Administrative penalties are measured in penalty units. Per s166 SIS Act penalties can range from 5 up to 60 penalty units. A penalty unit is currently $210. So the maximum penalty of 60 penalty units would add up to $12,600 per trustee.

If your SMSF has four individual trustees, this would mean a maximum penalty of $50,400 – one of many arguments against individual trustees. 

When you have a corporate trustee, the ATO can only issue one penalty notice. So the maximum penalty would be $12,600 – another argument for a corporate trustee.

Be it individual or corporate trustee – you can’t pay these penalties from SMSF assets. Instead you must pay these out of your own pocket. 

While the ATO has no discretion in administering these penalties – they are what they are – the ATO can remit these penalties, either partially or in full. You can fight the ATO on this though and take them to court.

2  –  Rectification Directions

The ATO can order you to fix the problem. They can require you to undertake specified action to rectify the contravention and show evidence that you have actually done that within a specified time frame.

And they can ask you to outline the arrangements you have put in place to ensure all this won’t happen again.

If you don’t think the ATO’s direction makes any sense, you can ask for a variation of a rectification direction in writing before the specified date. You must date and sign the request and most importantly you must outline why you request this variation. If the ATO refuses to vary their direction, you can object. 

A good way to avoid a rectification order is to give the ATO an enforceable undertaking. So rather than you waiting for the ATO to tell you to fix the problem. You are proactive and tell the ATO how you will fix it. The ATO usually welcomes such initiative.

3 – Education Directions

If the ATO suspects that you might lack knowledge and understanding of your responsibilites as a trustee, they can ask you to attend a course to help you better understand your obligations as an SMSF trustee. They call this an ‘education direction’.

Such an education direction will ask you to undertake an ‘approved course’ within a specified time frame. And show evidence that you actually completed the course.

Some of these courses are free, but if you do a fee-paying course, you will need to pay for this out of your own pocket and not from SMSF funds.

And you will be required to re-sign your SMSF trustee declaration to confirm that you understand your obligations and duties as a trustee.

An education direction seldom comes alone. The ATO will usually combine an education direction with a rectification direction and / or an administrative penalty.

Under the law, all trustees are treated as if they were aware of the SIS Act and Regulations. No matter whether this is actually the case or not. So you can’t use lack of knowledge as a defence. “Sorry I didn’t know” is not a valid defence, unfortunately.

4  – Civil Penalties

If you thought, administrative penalties were harsh. Wait for civil and criminal penalties. These are even tougher.

If you contravene a civil penalty provision, a court can make a civil penalty order gainst you under s196 SIS Act. The maximum civil penalty is currently 2,000 penalty units, which translates to $420,000 (at $210 per penalty unit), as defined in section 4AA of the Crimes Act 1914.

5  – Criminal Penalties

The ATO can impose criminal sanctions – and not just on SMSF trustees but also on others. For example on promoters of illegal early access super schemes. 

6 –  Disqualification of SMSF Trustee

The ATO can disqualify you as an SMSF trustee if they no longer see you as a fit and proper person. If they are concerned with your actions or your suitability as a trustee.

Declaring you not to be a fit and proper person is a big thing though. And so disqualification will only ever happen after weighing up the seriousness and frequency of your contraventions and the likelihood of you re-offending

7 – Notice of Non-Compliance

In the case of a serious breach of the SIS Act, the ATO can issue a notice of non-compliance. Your SMSF will then remain non-compliant until you receive a notice of compliance.

Your now non-complying superannuation fund will lose its concessional tax treatment and that can result in a large tax bill.

———

So given all this it really pays to seek help early. Please write or give us a call if you get stuck.

“A sum can be put right: but only by going back till you find the error and working it afresh from that point, never by simply going on.”
C.S. Lewis

 

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Retirement Age

Penalty Units for SMSF Trustees

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

senior card

Seniors Card

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As you reach your sixties you might qualify for one of the best deals around – your state government’s Seniors Card.

Seniors Card

With a senior card you will qualify for concessional fares on public transport as well as other discounts from participating businesses.

Concessions

The most important feature of a Seniors Card is that it gives you access to concessional fares on public transport.

There might be other state government concessions like discounted entries to National Parks, museums and so on. But the nature of these concessions vary from state to state and territory.

And then there are the discounts that private businesses might offer you when you present a Seniors Card. They don’t have to. But many do, especially in relation to travel, hospitality, insurance and commodities. Check the online directory in your state or territory listing local deals and discounts.  

Eligibility

How to qualify for the card varies from state to state and territory. 

To be eligible you need to be 65 years in Queensland, 62 to 65 in Western Australia depending on your date of birth and at least 60 years in all other states and territories. 

You must be a resident with an official address in that state or territory.

You can still work in paid employment while holding a seniors card, so you don’t have to retire to qualify. But all states and territories set a limit on the number of hours you can undertake paid work and still qualify.

This number is set per week and averaged over 12 months, but varies widely across Australia. In NSW, ACT, Tasmania and South Australia it is 20 hours per week. Western Australia draws the line at 25 hours. In Victoria and QLD you can work for up to 35 hours.

The Seniors Card is not means-tested. And this is important. You might live in a mansion with water views and have money coming out of your ears, and still qualify for discounts.

Application

You usually apply online with your green Medicare Card or over the phone. 

Victoria, Western Australia and Queensland also offer a paper form application.

In Queensland and ACT you can apply in person at government service centres. In Western Australia and South Australia you apply at an Australia Post outlet and in Tasmania a Service Tasmania shop will help you.

What to provide with your application differs slightly from state to state but you usually need to provide proof of identity, age and address. 

Travelling

Many places in Australia will give interstate seniors with an interstate Seniors Card the same concessions as local seniors with the a local Seniors Card.

The same applies to many places overseas. So always take your Seniors Card with you when you travel.

Validity

The cards don’t have an expiry date. Once you receive a Seniors Card, it is valid for a lifetime. So there is no need to renew the card.

The card lists your name, is not transferable and can be replaced if damaged, lost or stolen. 

More Information

Each state and territory provides online information about their Seniors Card program. Their websites will give you up-to-date information about eligibility, application and concessions. We have listed the links here:

New South Wales – Victoria – Queensland – Western Australia – South Australia – Tasmania – ACT – Northern Territory

Senior Business Discount Card

All states and territories offer a Seniors Card, but only Victoria and Queensland offer a Senior Business Discount Card. 

A Senior Business Discount Card is not as good as a Senior Card. It offers less. And so you would only apply for a Senior Business Discount Card if you don’t qualify for a Seniors Card.

But it still is pretty good given that thousands of business outlets in Victoria and Queensland will offer you free deals or discounts on the Discount Card.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

Commonwealth Seniors Health Card

Commonwealth Seniors Health Card

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The Commonwealth Seniors Health Card (CSHC) is to help you cover your medical expenses while self-funding your retirement.

Commonwealth Seniors Health Card 

Funding your retirement is one thing. There is super, maybe the age pension, maybe some personal savings.

Paying your medical expenses however is a different story. Nobody thinks of medical expenses to begin with. We all imagine our retirement to be spent on golf courses, cruise ships and overseas trips. But with time medical bills will enter the scene. And this is when the Commonwealth Seniors Health Card (CSHC) comes into play.

Self-Funded Retiree

The Commonwealth Seniors Health Card (CSHC) is aimed at self-funded retirees, who don’t claim the age or DVA pension – even though they are of pension age – and instead just live off their super.

It is to help self-funded retirees with their medical bills. The government’s hope is that this additional support will allow you to stay self-funded, even as your medical bills increase with age. 

Concessions

The CSHC comes with a range of possible concessions.

It might give you cheaper access to Pharmaceutical Benefits Scheme (PBS) prescription items and increase your benefits via the Medicare Safety Net. You might receive an energy supplement and receive other benefits from state governments and businesses. And there is a small chance that doctors agree to bulk-bill you as a CSHC holder.

The Centrelink / Department of Human Services website has more information about possible concessions.

Conditions

There are four conditions to qualify for the Commonwealth Seniors Health Card.

1  –  You must be of pension age, which starts somewhere between 65 and 67 depending on your date of birth;

2 –  You must be self-funded and not receive any income support from Centrelink or DVA (Department of Veterans Affairs);

3  –  You must be an Australian resident currently living in Australia;

4  –   Your annual adjusted taxable income (ATI) must meet an income test.  

The good news is that there is no asset test. So this is different to the age pension.

Threshold

The threshold for you annual adjusted taxable income (ATI) is indexed and hence changes each year. In rough numbers, your ATI must be less than $55k when single and less than $90k as a couple. If you live apart as a couple due to illness, respite care or prison, then your combined ATI is about $110k. 

Indexation

From 2001 until 2014 the ATI thresholds were not adjusted to inflation. And as a result, less and less self-funded retirees qualified for the CSHC.

With time this would have pushed the CSHC into oblivion. So in September 2014 indexation came back. And the income thresholds have been indexed every September ever since.

So you would think that increasing the income thresholds would make more Australians eligible for the CSHC.

But the indexation is offset by another change in the opposite direction. Since January 2015 deemed income from superannuation in pension mode is now included in your ATI and hence makes it harder to pass the income test. 

Adjusted Taxable Income

Your adjusted taxable income (ATI) is your

1 – taxable income plus
2 – foreign income not taxed in Australia, plus
3 – total net investment losses, plus
4 – employer-provided fringe benefits (if exceeding $1,000), plus
5 – reportable super contributions and plus
6 – any deemed super income from a taxed source.

Let’s go through these one by one.

1 – Taxable income

Your taxable income is your gross income less deductions. Even if you don’t have to lodge a tax return, you might still have taxable income.

2 – Foreign Income Not Taxed in Australia

This relates to income you receive from outside Australia for which you don’t pay Australian income tax. 

3 – Total net investment losses

Your total net investment losses are your net losses from rental-properties and from financial investments. You add these negatively geared losses back to your adjusted taxable income. 

4 – Employer-Provided Fringe Benefits

Employer-provided fringe benefits include benefits such as cars, loans, housing, and health insurance. But you only add them to your ATI if they exceed $1,000.

5 – Reportable Super Contributions

Reportable superannuation contributions are not the compulsory 9.5% superannuation guarantee (SG) contributions your employer might have paid for you. It also doesn’t include the non-concessional contributions you might have paid out of your after-tax income.

Instead, it is the salary sacrifice you might have paid into your super fund as well as any additional super your employer might have paid for you in addition to SG.

6 – Deemed Super Income from a Taxed Source

Super benefits can come from an untaxed or taxed source. Most Australians only have super from a taxed source. You usually find untaxed sources only among retired former government employees.

Super benefits from an untaxed source are subject to tax and therefore already part of your taxable income and hence ATI. So there is no need to deem any income. 

Super benefits from a taxed source while aged 60 or over are tax-free, however. As a result the actual payments are not included in your taxable income. And this is where deeming comes into play.

Your ATI includes a deemed amount of pension income for any pensions started post 2014. So not the actual payments, but a deemed amount.

New applicants on or after 1 January 2015 include deemed super income based in their adjusted taxable income.

This is a radical change, but it only applies to new applicants applying for the CSHC on or after 1 January 2015 and new pensions.

Pre-2015

This deeming of pension income only applies to CSHC cards issued and pensions started on or since 1 January 2015.

If you have been holding your current CSHC card since 31 December 2014 or earlier, then these pension benefits still fall under the old rules. Meaning there is no deeming of super income.

However, this grandfathering only applies to the actual pension in place as of 31 December 2014. If you start a new pension on or after 1 January 2015, then this new pension will be subject to the new rules, even though you might be a pre 2015-CSHC holder. 

Calculation

Deeming means that the actual amounts withdrawn from your super account are not taken into account for the ATI. Instead deeming assumes a standard rate of return on your super pension assets. Your actual returns or pension payments might be different from this standard return.

The calculation uses the asset value of your super pension assets applying a set interest rate. This might sound familiar. The age pension also deems super income since 1 January 2015.

Overseas Travel

You can spend up to 19 weeks overseas without losing your current CSHC. If you are away for longer, you need to apply for a new card.

This is important if you held your CSHC since pre-2015. A new application would break the grandfathering rules and would mean that your new card would become subject to the deemed income rules we will discuss later.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

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Retirement Age

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There is no mandatory retirement age in Australia. You don’t have to retire. It is just an option you have once you reach a certain age.

Retirement Age in Australia

Australia has no official retirement age. You can work as long as you like. But if you want to access your super or claim the age pension, then you must have reached a certain age before you can do that. 

To access your super, you must have reached your preservation age. And to claim the government age pension you must have reached your pension age.

What your preservation and pension ages actually are depends on your date of birth.

Perservation Age

To claim your super you must have at least reached your preservation age, unless you have met a special condition of release that allows you earlier access to your super under special circumstances like severe financial hardship or permanent disability.

The minimum preservation age is 55 years if born before July 1960 and 60 if born in July 1964 or later with a staged transition for anybody born in between these dates as follows:

56 if born between July 1960 and June 1961.
57 if born between July 1961 and June 1962.
58 if born between July 1962 and June 1963.
59 if born between July 1963 and June 1964.

Pension Age

To qualify for the age pension you need to meet four conditions. And one of these conditions is that you have reached pension age.

Your pension age depends on your date of birth. It is 65 years if born before July 1952 (and even younger for women born before 1949) and 67 if born in July 1957 or later with a stage transition in 6 months increments for anybody born between these dates.

65 years and 6 months if born July 1952 to December 1953
66 years if born between 1954 and June 1955
66 years and 6 months if born July 1955 and December 1956

____

If something doesn’t make sense, please reach out to use. There might be a simple answer to your query.

 

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Super by Age

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

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Age Pension

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75% of Australians of pension age receive the age pension – be it a partial or full pension.

Age Pension

You don’t automatically receive the age pension when you hit a certain age. You need to actively apply for this government-funded benefit by submitting the relevant Centrelink forms to Centrelink. Centrelink is part of the Department of Human Services of the Australian Government.

To qualify you need to meet four conditions.

1 – You need to be of pension age.
2 – Be an Australian resident for social security purposes.
3 – Pass the income test.
4 – And pass the asset test.

# 1   Pension Age

The first condition is that you must be of pension age. Your pension age depends on your date of birth and is :

65 years if born before July 1952
65 years and 6 months if born July 1952 to December 1953
66 years if born 1954 to June 1955
66 years and 6 months if born July 1955 to 1956
67 years if born in 1957 or later.

If you are a woman born before 1949 your pension age is even lower than 65 years.

# 2   Australian Resident

The second condition is that you need to be an Australian resident and must reside in Australia on the day you make your claim.

An Australian resident is an Australian citizen or a permanent visa holder or a protected Special Category visa holder from New Zealand.

The rules around residency tightened on 1 July 2018 when the Enhanced Residency Requirements for Pensioners came in. Under these new rules you now need to prove 15 years of continuous Australian residency when applying for a new age or disability support pension, unless you meet one of the following two exceptions. 

You either had 10 continuous years of Australian residency including at least 5 years between age 16 and pension age.

Or you had 10 continuous years of Australian residency and proof you have not received activity tested income support for cumulative periods of five years or more. 

Existing Exemptions

Existing exemptions will stay the same. So you don’t need to meet these residency requirements, if you are receiving a widow, widow B or partner allowance when reaching pension age. Or if you are or were a refugee. Or if you are a woman and your partner died while you were both Australian residents, provided you were an Australian resident for at least 2 years before your application. But we do shake our heads at this one. Why only if you are a woman? What about a stay-at-home dad whose late wife was the bread winner?

Before July 2018

Before July 2018, the residency rules were more lenient. You needed to have been an Australian resident for at least 10 years. But these 10 years didn’t have to be continuous. You were able to add up the years over multiple stays,  provided one of those stays was at least 5 years.

Australia has a social security agreement with over 30 countries. If you reside and/or work in one of these countries, you might still count as an Australian resident for social security purposes thanks to the special rules in these agreements.

# 3   Income Test

To be an eligible individual you must satisfy two tests: an income test and an asset test. And you need to pass both tests to qualify. The test that delivers the lowest amount of entitlement is the one that will determine your entitlement. 

The income test assesses your fortnightly income against thresholds set by the government. If your fortnightly income exceeds the full income threshold, then your entitlements are gradually phased out down to a cut-off point.

The thresholds vary depending on your family status, living arrangement, disability and other factors. 

Deemed Income

If you own financial assets (such as shares, term deposits or since 2015 super), then the income test doesn’t actually use the actual income earned from these assets. Instead the test uses deemed income.

Deemed income is when you assume a rate of return even when that rate isn’t necessarily what you actually earn on your investment. 

Work Bonus

If you choose to work while on the age pension, then you are entitled to a Work Bonus. This bonus is $250 per fortnight and works like an offset in the income test. You can accumulate unused work bonuses up to a certain threshold. 

# 4   Assets Test

For the assets test you determine the value of your assessable assets less any relevant debt against set asset thresholds. The test looks at your assets worldwide but then grants you certain exemptions, for example for your home.

An asset is essentially anything you own which has monetary value and can be converted into cash – no matter how liquid or illiquid the asset might be. But certain assets and asset classes are exempt from the test.

If your total assets are below a threshold, you pass the asset test. If they exceed the threshold, your entitlements are phased out down to a cut off point.

Timing

You only become entitled to the age pension from the date Centrelink receives your claim form and all supporting documents. So if money is really tight, make sure you have all your papers ready before your pension age birthday.

So these are the four conditions to qualify for the age pension. If you have a question, please reach out to us. There might be a simple answer to your query.

 

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Preservation Age

Super by Age

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

 

Preservation Age

Preservation Age

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At what age can you access your super? What does your preservation age have to do with this? 

Your Preservation Age

Preservation age is highly relevant to anybody born on 30 June 1964 or earlier. And completely irrelevant to anybody born after that. And it is highly relevant while below 60 and completely irrelevant once you hit 60.

Access to Super

Super is meant for your retirement.  And so the legislator has put tight controls on when you can access your super. Before you get access, you must meet a condition of release. 

There are preserved and non-preserved benefits and there are special and general conditions of release.

Preserved

Most Australians have preserved super benefits. These benefits are preserved until you meet a condition of release. There are various conditions of release, some linked to your preservation age.

Non-Preserved

Very few Australian have non-preserved benefits. These benefits don’t require a condition of release and hence have nothing to do with your preservation age or age in general.

Special Conditions of Release

Until you meet a general condition of release, the only way to access your super is by meeting a special condition of release. Special conditions of release have nothing to do with your age.

Instead, they apply when the going gets tough and cover incapacity, severe financial hardship, terminal medical conditions and other scenarios requiring compassion.  They also include the First home super saver scheme.

General Conditions of Release

Most Australians access their super after meeting a general condition of release. There are four general conditions of release.

1 – Reaching preservation age and retiring.
2 – Reaching preservation age and not retiring, but starting a TRIS.
3 – Turning 60 and ceasing an employment arrangement.
4 – Turning 65

Once you turn 60, your preservation age is no longer relevant.

Perservation Age

Preservation age is the minimum age at which you can access your super if you retire or start a TRIS. Before that only a special condition of release can help you.

It is 55 if born in June 1960 or earlier, and 60 if born in July 1964 or later with a staged transition if born between these dates.

Pension Age

Preservation age is not pension age. They are two different things. Preservation age is about accessing your super. Pension age is about qualifying for the age pension.

Pension age is the age that you first become eligible to claim the age pension. It is 67 if born in 1957 or later and 65 years if born in June 1952 or earlier with a staged transition of 6 months increments for anybody born in between these dates. 

The Gap

You can access your super well before you can qualify for the age pension. If born in 1964 or later, there is a gap of 7 years between the preservation age of 60 and the pension age of 67.

So in the worst case scenario your super just has to cover this gap, before you can qualify for the age pension.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

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Retirement Age

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

super by age

Super by Age

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Super by age – super for you is not like super for another. Many rules are linked to your age. 

Your Super By Age

Super rules change as you age. What you can or can’t do with your super right now will be different to what you can or can’t do with your super some years into the future.

But not every birthday is important in super land. Some don’t matter at all. Some matter a lot. The ones that matter the most are turning 18 and then 25, reaching preservation age, turning 60, 65 and possibly 67 for the age pension – and then turning 75.

0 – 18

Your super is the last thing anybody will think about right now, but super rules do apply to you from the day you are born. Like anybody else – irrespective of your age – you

– can receive non-concessional contributions into your super;
– pay 15% on any income in accumulation;
– need to comply with all investment rules around super;
– qualify as your parents’ SIS dependant;
– and can’t access your super unless you meet a condition of release.

But different to most – while under 18 – you

– can only make personal concessional contributions if you run a business;
– can only act through a legal guardian due to your legal disability;
– qualify as your parent’s tax dependant – irrespective of anything else;
– can receive your parents’ super as a death benefit pension;
– are only entitled to SG if you work ≥ 30 h/week for ≥ $450/month.

18 – 25

Turning 18 is a big day in super land. A lot changes on that day. From now on you

– can make personal contributions without having to run a business.
– act in your own name and no longer need a legal guardian;
– are entitled to SG irrespective of hours worked;
– no longer qualify as a child tax dependant.
– qualify for a child death benefit pension if financially dependant and < 25;

25 – Preservation Age

Once you turn 25, you can no longer qualify for a death benefit pension from your parents.

Preservation Age – 60

If you were born on 1 July 1964, then preservation age doesn’t mean anything to you. Preservation age is only relevant to you if you were born before 1 July 1964.

Reaching preservation age means two things. It is easier to access your super. And you pay less tax than before when you do. Your preservation age depends on your date of birth and is

55 if born 30 June 1960 or earlier
56 if born 1 July 1960 to 30 June 1961
57 if born 1 July 1961 to 30 June 1962
58 if born 1 July 1962 to 30 June 1963
59 if born 1 July 1963 to 30 June 1964

There are two ways to access your super from now on. You either start a pension when you retire with no intention to work again – changing your mind later is ok.  Or you start a transition-to-retirement-income-stream (TRIS) without the need to retire.

Both a pension and TRIS require minimum pension payments that increase with age. In addition, a TRIS has a 10% limit that a pension doesn’t have. 

Since you access your super before you turn 60, you will pay some tax on the taxable component of any benefit payments.

60 – 65

You can now access your super as long as you cease an employment arrangement. You can start a pension or cash it all in and move to Timbuktu. Accessing your super after your 60th birthday is tax-free.  So waiting saved you a lot of tax. 

65+

This is a big birthday in super land. And there are good news and bad news.

The good news is that you have free access to your super. You don’t need to retire. You don’t need to cease an employment arrangement. 

The bad news is that – apart from super guarantee payments from your employer – you can no longer make concessional or non-concessional contributions unless you meet the work test, meaning you must work at least 40 hours within 30 consecutive days in a financial year. 

67+

Let’s step away from super land for a moment. The age pension lives by its own set of rules. One false move can forever stop you from qualifying.  The eligible age for the age pension is 67 years of age, unless you were born in 1956 or earlier.

There are several conditions to meet before you qualify for the age pension. Just turning 67 is not enough. Please listen to Tax Talks episode # 121 about the age pension.  

75+

No more voluntary contributions. None at all. Whether you pass the work-test or not. So the only way to still get contributions into your super is through your employer’s superannuation guarantee payments.

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And that’s it. That is your super by age in a nutshell. Please reach out to us if you have a question. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.